Rough Economic News Abounds Tuesday

Permits for the construction of single-family homes reached a 26-year low in July and wholesale inflation in the month came in at more than double what analysts had been expecting, according to two separate reports Tuesday from U.S. government agencies.

The Commerce Department reported Tuesday morning that overall housing starts had slipped to their lowest level in 17 years. Single-family homes starts were at their lowest level in 26 years. The rate of housing starts fell to an annual level of 965,000 in July, down 11 percent from June. In the past year, housing starts have decreased 29.6 percent.

Builders are working off a large backlog of unsold inventory, resulting in fewer new homes being built. Also, rising foreclosures on existing homes are increasing the supply of homes in the U.S. at a time when the ongoing credit crunch is hampering demand. The Fed’s Senior Loan Officer Opinion Survey, released last week, underscored the trouble consumers are seeing in getting loans amid tightened loan standards (“Banks Continue to Tighten Credit for Consumers and Businesses: Fed Survey,” Aug. 12).

In a separate report, the U.S. Department of Labor said that prices paid to U.S. producers in July rose by twice the amount that economists had projected. The producer price index increased 1.2 percent from June when economists had expected a rise of around 0.6 percent.

Producer prices are up 9.8 percent over in the past year, the highest rise since 1981.

The core PPI — which strips out food and fuel costs — prices was up 0.7 percent, exceeding the 0.2 percent forecast among economists surveyed by both Bloomberg News and MarketWatch.

Investors responded to the economic news by sending the Dow Jones Industrial Average down more than 120 points in early trading Tuesday.

The producer price inflation report comes after last week’s consumer price report showed inflation increasing faster than expected for consumers in July as well ("Consumer Inflation Surges More than Expected in July," Aug. 12).